Updated 28 minutes ago on . Most recent reply
Rent increase amount
Hey guys, I just bought a property in El Paso, TX. It is a duplex near UTEP. My tenant is living on one side and I live in the other. Both sides have two beds and two bathrooms. My PITI is about $2,750/mo. My tenant pays $1,250 per month which is under rent by about $400 from what I saw on the comps. He's been paying this rent for about 3yrs and he told me the previous owner never raised the rent nor did any upgrades to property. I just paid $16,400 to install two AC units since it was on a swamp cooler before and it gets hot during the summer and is miserable. With the new AC, I have it nice and cool now and do plan on doing some cosmetic stuff here and there as time goes on. That being said, his lease renews on 6/29 and I'm wondering how much I'm able to increase the rent. I've already made it aware that I need to increase the rent and he's okay with it but I'm having a hard time as to how much. He's a great tenant who takes care of the property and keeps it clean. I was reading that 12-15% is the usual for this kind of upgrade but I kind of don't want to scare him off. I was thinking 10% which puts me at $1,375 with increases every year from then. Rents in the area for this size of unit shows about $1,600. Hope this makes sense. Thanks in advance!
Most Popular Reply
I am often the contrarian and this is another example
I am for good tenants getting a little discount. There is many issues with the proposed increase.
- the property has huge negative cash flow. Two times that rent does not cover the piti. The numbers get far worse when including maintenance/cap ex, PM (even when self managing allocate for pm as I suspect the owner does not want to work for free), all the smaller misc items such as bookkeeping, asset protection, one off utilities, etc. the reality is the owner is subsidizing this property hundreds of dollars a month.
- if we strive to pay the AC off in 100 months, the AC consumes $82 of the $125/month increase. So $43/month increase beyond AC cost recovery.
- if market rent is really $1600: $1450 year is $150/month less than market rent. Tenant is unlikely to find a comparable unit for $1450 and unlikely to move out to downsize at the same rent point. In addition, $150/month below market is $1800/year which of s a substantial discount. That is a very substantial saving for being a good tenant.
- let’s say the tenant does move out to downsize because they cannot afford the new rent, the OP would have vacancy and turnover costs, but would have additional rent of $1800/year at $1450 rent or $3300/year at $1325.
I would raise the rent to $1450 and consider $1500/month. If the tenant stays great. If the tenant moves out , great. As indicated I do believe good tenants have value and if could be wise providing slightly below market rent to good tenants. $275/month discount in a $1600/month market rent is not a slight discount. It can s a 17% rent discount every month.
Good luck